How did the San Diego Symphony decide to charge $20 to $96 for single tickets this season? Why is an adult admission to the San Diego Natural History Museum precisely $17? How do theaters decide how many seating sections to have and how much to charge for each?
A little economics refresher should help us answer those questions.
Outside a monopoly, prices for goods and services — an orchestra concert, a museum visit, a play — are a function of two things. One is how much that good or service costs to create — for example, buying works of art, hiring singers, paying salaries and rent. Next, you have to determine how much your potential buyer is willing to spend, based on supply and demand. How many people want tickets and how many tickets are available? How big is a museum or auditorium, and how many hours can it be open and ready for action? You’d pay a lot for Yo-Yo Ma play in your drawing room and a lot less to hear him at Cricket Wireless Amphitheatre with tens of thousands of other fans. Rock on.
Many other things affect prices, but to keep things simple let’s look at two: Competition and marginal costs. If you’re a theater putting on “Harvey,” you want to be similarly priced with similar theaters. But not always. If you charge more you might seem overpriced — or top notch. If you charge too little, you could seem like a good value — or subpar.
Marginal costs are the extra expenses a merchant pays after setting things up. After you open your clothing manufacturing plant, every time you make a pair of jeans, you need to pay for materials and time and a person or machinery. After you open your café, each espresso shot will cost you a few pennies.
For art organizations, marginal costs are low: Once you open a museum and staff it, or once you plan an opera, assemble your singers and open your doors, it costs very little to let an extra person in. That’s one reason why ticket and subscription revenues typically cover less than half of the annual budget of many arts organizations. Those up-front costs are high, and ticket prices (determined by all the above forces) don’t even begin to cover expenses. Hence the fundraising industry.
So there you have it. Ticket pricing in a nutshell. With apologies to anyone who reads the Financial Times for fun or profit.
Now let’s break this down.
Cost to Create or Own
Add up all expenses in a year (or season or show run), like theater or display space, salaries, sets, insurance, utilities, advertising costs, paper for programs. Skip taxes, since they’re nonprofits. Add in the cost of artworks or other long-term investments, spread over the lifetime of the institution. Divide those costs by the number of tickets sold in that same period. That’s the average full cost of a ticket.
But there’s a problem.
“We can’t just operate on ticket sales. We’d have to charge $100 a ticket,” Robert Smyth, director of Lamb’s Players Theatre. “They might pay that to see a Broadway show but they’re not going to pay that to see a regional theater.”
That’s a common misconception — that tickets actually cover the costs of a show or exhibit. Actually, admission revenues at arts organizations account for a fraction of their operating costs. Interestingly, a few organizations cited $100 as a magic number — what a ticket would cost if admissions revenues alone supported the enterprise.
For the San Diego Symphony, tickets and subscriptions account for 38 cents of every dollar in the annual budget, said Stephen Baker, senior marketing director. Subscriptions are groups of tickets, sometimes for every concert or play in a season, sometimes for a portion of them.
For the Museum of Contemporary Art San Diego, tickets cover just 3 percent, said Rebecca Handelsman, senior marketing manager with the museum. That’s not including memberships — the visual arts equivalent of a subscription.
Arts organizations make projections like any business, based on figures from previous years and current economic indicators, to set fundraising targets, budgets and ticket prices. The difference between admissions (tickets plus subscriptions or memberships) and the full budget is covered by donations and grants, usually collected years ahead. Some have other means: renting out space for private parties, sewing and selling costumes, running a gift shop, hosting events.
Of course, none of these are set in stone. Organizations could cut staff, or use fewer musicians in a performance, or use cheaper fabric for costumes. But they walk a line between presenting the show they want to make and pricing out people who’d come to see it.
“If somebody says to me, ‘Could you cut prices by 50 percent?’ I can do it when you contribute the other 50 percent,” said Ian Campbell, general director of the San Diego Opera. “‘When will you go back to five operas?’ When you will pay 20 percent more for our subscription. That’s the reality.”
By the way, pricing subscriptions and memberships is a different challenge. For some places, three shows equal a subscription. For others it’s five. How long in advance are people willing to commit, and how big do the savings have to be to make that commitment worth it? Subscriptions and memberships are down across the arts, with a few exceptions — meaning groups have to sell more single tickets to compensate.
Supply and Demand
Fluxx, the downtown club where Ashton Kutcher notoriously got his groove on a few weeks ago, charges $20 for one evening, while the Museum of Contemporary Art charges $10 for a seven-day pass to two locations.
Both admissions pay for access, experience. Both house treasures, depending on what your definition is of that word. But there’s one obvious difference, says Thomas Baranga, assistant professor of economics at University of California, San Diego: “There’s more demand for nightclubs.”
To test demand, arts organizations look at what seats sold last year. They experiment with seating charts, discounting low-selling seats or raising prices on sections that sold out consistently. They study individual buying patterns and look for changes: is Mrs. Simpson opting for more musicals? And they ask consumers directly, through surveys.
They also change supply — offering fewer performances, as the San Diego Opera has done since 2010, or more venues, as the Museum of Contemporary Art did in 2007.
Competition and Marginal Profit
Almost every organization I talked to listed prices of competitors by rote.
“We’re the third largest theater company in the region,” Smyth said. “Our ticket pricing reflects that. We’re lower than Globe and Playhouse, more expensive than the fourth largest theater company. Everybody lines up depending on size, budget, production values,” Smyth said.
Handelsman said she’s aware of ticket prices at peer museums in other cities, and tries to stay “moderately or competitively priced.” Admission is $10 for modern art museums in Los Angeles and Fort Worth, and a suggested $12 in Chicago. Why keep tabs on museums across the state or country? I’ll wager that it’s less about competition than benchmarking.
Competition is fiercer on a local scale, Baranga said, since they’re up against every other leisure offering in the city — pricey sports seats, the free beach.
It doesn’t cost more to let in an extra person, once you’ve opened a museum or marked your calendar with a performance. It’s the fixed costs that get you, Baranga noted. Some accrue around the clock: you’re still paying the rent or mortgage, insuring precious objects, hiring a core staff to plan the next season or answer queries from reporters. Other costs coincide with shows or seasons — like staffing a box office or licensing rights to plays or music.
“The marginal cost of letting an extra person through the doors is very low. On the other hand, there are large fixed costs, even if no one turns up,” he said.
Since a museum is open whether four or 400 people show up, and it doesn’t cost more to perform Vivaldi for 101 people than it does for 100, that’s where a major opportunity for discounting arises.
The Golden Number
So back to our original question: Why $96 or $17? What effect would charging a dollar more or less have?
Let me ask you: How much do you pay for access to the symphony, your favorite opera, a good art exhibit? How much are you willing to spend on something risky at the La Jolla Playhouse or a familiar favorite at The Old Globe? Do you hunt for discounts or donate to the arts?
Please share your golden ticket number for theater, dance, visual arts or classical music in a comment below or send me an email with your thoughts.